Short-term electricity trading for system balancing: An empirical analysis of the role of intraday trading in balancing Germany's electricity system

Abstract

Previous studies have noted that, unexpectedly, Germany's dramatic expansion of wind and solar energy coincided with a reduction of short-term balancing reserves. This observation has been dubbed the "German Balancing Paradox". This paper provides further and updated evidence: since 2011, wind and solar energy have nearly doubled while both reserve requirements and reserve use have declined by 50%. The paper quantitatively explores one reason for reduced balancing needs: increased and improved short-term wholesale electricity trading on the intraday market. Trading is now commonly done around the clock and based on quarter-hour, rather than full-hour, contracts. The shift to quarter-hourly products alone explains a decrease in balancing energy by 17%. There is also strong evidence that market parties respond efficiently to imbalance charges, suggesting that incentive-based approaches to electricity balancing work. Highlights Since 2011 wind and solar energy nearly doubled; balancing energy decreased by 50%. One reason for this is the expansion of short-term electricity trading. It is now common to trade electricity around the clock, and on a 15-min basis. In general, the paper finds support for efficient short-term electricity markets. Good market design allows integrating large volumes of renewable energy at low cost.

Forecasting the Price Distribution of Continuous Intraday Electricity Trading

“…Conventionally, deviations from the day-ahead schedules are compensated through balancing energy which is contracted and centrally dispatched by the transmission system operator. The possibility to trade electricity on short notice can partly explain the counter intuitive situation that the demand for balancing energy in Germany in the last years substantially declined, while at the same time the share of generation from renewable sources increased [1,2]. Thus, intraday markets can be an effective tool to support the transition to a flexible and renewable energy system and have seen steadily growing volumes in recent years [3].…”

Intraday imbalance optimization: incentives and impact of strategic intraday bidding behavior

“…Thus, it needs a more general approach. The price estimation is based on the working price bids of aFRR as it is the mostly activated balancing reserve measure in Germany [51]. We calculate for every tendered period tp for both positive and negative balancing reserve the average activation costs (sum of working price WP times volume q of a bid) for a fixed volume Q .…”

“…The red area highlights quarter-hours with insufficient imbalance price incentives. The intraday price is calculated as the volume weighted average price of all trades within the last 4.35 min of trading already discussed in Koch and Hirth [51] whose empirical analysis shows a systematic shift towards a system shortage. If the system balance is short, the spreads tend to be smaller (Fig.…”

Balancing Generation from Renewable Energy Sources: Profitability of an Energy Trader

“…While this is a more time-series related argumentation, there is also the omnipresent risk of regime-switches. In particular, the balancing market regulations have changed in the European countries quite frequently in the past and are likely to do so in the near future [20,21]. Given this, an energy trader has two options-accept the full risk for a considerable premium on the commission or mitigate risks by specific contract design, e.g., by transferring risks related to extreme price scenarios back to the RES producers.…”